401k Loan and a 401k Hardship Withdrawal

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					401k Loan and a 401k Hardship Withdrawal
Most experts would say there is no right time to take a loan or withdrawal , because by taking out this money you are not actually using your
retirement savings for the purpose it was intended. However, if you feel a loan or hardship withdrawal is your last financial option, learn what
it means to borrow.

Loans
Taking out a loan is probably the easier way to get money out of your 401k. And for many, there are definite benefits involved in this financial
decision. One is that you can borrow up to 50 percent of your vested account balance, or as much as $50,000 tax-and penalty-free for most any
reason. Because you get about five years to pay the loan back (with interest, of course), the financial strain involved is a lot less strenuous than
with many bank loans. Another benefit is that you are able to contribute to your plan while your loan is still outstanding. For many, the biggest
perk is that no credit check is conducted to determine eligibility. However, there is one major con; If you leave the company while holding an
outstanding balance on the loan, you may have to pay if your 401k loses money on investments.

Hardship Withdrawals
Unlike the loan, a hardship withdrawal can be more difficult to get your hands on – because of the limited reasons you can qualify for it. Below
you can find the short list of reasons an employer will allow you to take out a hardship withdrawal:
	         •	Un-reimbursed	medical	expenses	for	you,	your	spouse,	or	your	dependents.
	         •	The	purchase	of,	or	repairs	made	to,	a	principal	residence.
	         •	Payment	for	you,	your	spouse,	dependents,	or	children	who	are	no	longer	dependents	for	college	tuition	and	other	related	costs	like			
          room and board for the next 12 months.
	         •	Payments	that	will	stop	you	from	being	evicted	or	stop	a	foreclosure	on	your	home.
	         •	Funeral	expenses

As mentioned, there are strict guidelines involved in a withdrawal:

	        •	The	withdrawal	must	be	due	to	an	immediate	and	heavy	financial	need
	        •	The	amount	from	the	withdrawal	must	be	able	to	satisfy	the	need	(you	can’t	have	other	resources	available	that	you’re	not	using)	
	        •	You	cannot	withdraw	a	larger	amount	than	you	actually	need
	        •	You	must	first	exhaust	all	other	options	in	distributions	and	nontaxable	loans	under	your	401k	plan

Many believe there are no true benefits to taking out a hardship withdrawal. One reason is because upon withdrawal you are subject to a
10-percent penalty for taking out funds before the eligible age of 59 ½. In addition, your withdrawal is subject to additional income taxes based
on your tax bracket. Even worse, in some cases, after you withdraw, you are not allowed to contribute to your plan for six months, unlike the
loan which allows you to continue contributing.

Again, most experts would advise that you not take any money away from your 401k, but if you must, now you know the pros and cons of
withdrawals and loans, you can choose which is best for you. Before you make any decisions, make sure the specific guidelines and rules your
company requires, and be sure to check and double check all of your other financial resources for sources of money besides raiding your 401k
retirement plan.




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